Forthcoming U.S. Fiscal and Monetary Responses Will Hurt the Economy
With oil up another 12% today to $91 and the 10-year yield climbing, U.S. fiscal, monetary and foreign policy chickens are simultaneously coming home to roost.
My guess is the Fed will lower rates, which will only make things worse. The best thing the U.S. could do short-term would be to reduce fiscal spending. End the Iran war. Then shrink the budget by 50%. Neither is going to happen.
The Fed will first lower rates.
Then Treasury will issue debt to fund the Iran war and line Defense contractor pockets.
The Fed will have to print money to pick up the slack for weak Treasury auctions.
Meanwhile, the 10-year Treasury yield will climb higher, which will eventually rid the U.S. of the bubble mentality that has persisted since 2020 (that’s positive).
The Fed will try to exercise yield curve control on the 10-year yield, but I’m not confident yield curve control will work outside of the first couple of months.